North Carolina Bans Subprime YSPs

North Carolina Gov. Mike Easley has signed a bill that bars lenders from paying yield-spread premiums on subprime mortgages starting Oct. 1. North Carolina is the first state to ban YSPs, which is a form of mortgage broker compensation that is based on the interest rate of the mortgage. Consumer groups like the Center for Responsible Lending supported passage of House Bill 2188, and they contend that YSPs provide brokers with an incentive to steer borrowers into higher-interest-rate subprime mortgages. "By getting rid of yield-spread premiums, we are eliminating one of the root causes of the foreclosure crisis," said CRL senior counsel Chris Kukla. Roy DeLoach, executive director of the National Association of Mortgage Brokers, noted that the North Carolina law simply allows the lenders to pocket the YSP without disclosing it to the consumer. "Consumers are going to pay more money in the long run," Mr. DeLoach said.